The government has been encouraging real estate developers to take advantage of immense opportunities and demand for affordable housing and invest in the sector. To further attract and support developers, the government has already confirmed a Rwf200 billion guarantee facility for developers, producers of locally made construction materials and other investors in affordable housing that will be rolled out effective July 1.
The fund that will be managed by Rwanda Development Bank (BRD) seeks to help fast-track construction of affordable houses for middle and low-income earners and bring down cost of houses by up to 50 per cent of the current market price, according to infrastructure ministry officials. The announcement came on the heels of a call on developers by a top government minister to find ways that will enable people from expropriated land to own their own homes.
More interventions required
However, developers and experts say there is need for more interventions to help reduce further the high cost of construction and hence that of affordable homes.
They argue that the cost of houses is high partly because of imported building materials, the cost of land and lack of skilled personnel, among other factors. Importation of construction materials largely contributes to the swelling cost of building affordable housing and hence that of homes, putting them out of reach of the ordinary Rwandan, they add.
The country also faces a challenge of limited building technologies, which increases costs. These issues, they say, make investment in affordable housing less attractive, a reason the ‘big league’ developers prefer building for the upper market segment.
Dismus Nkubana, from the local engineers association, said developers still import some building materials due to issues of quality. He, however, noted that new firms that make construction material, including Hippo, which makes stone-coated tiles and StrawTec, that makes cardboards and prefabricated homes, could ease the problem.
Rwanda’s sole cement producer, Cimerwa, also increased it production capacity to 600,000 tonnes a year from 100,000 tonnes previously. Other local firms that make construction materials are SteelRwa and Sonatube, among others.
Nkubana said the setting up of new firms coupled with improved capacity of existing ones will greatly boost local production of building materials.
Rwanda imports materials like cement, steel bars, floor and roofing tiles, cardboards, window and door glasses, and wood among others, from the region and elsewhere.
Willy Rukundo, the managing director of Abadahigwa Ku Ntego Developers Limited, said though most construction materials can be sourced locally, sector players are forced to import some of the ‘sophisticated’ materials that are not available on the domestic market.
“Therefore, local firms need to be given more support to invest in the construction materials, especially for items that are still being sourced from abroad,” Rukundo told Business Times.
He said some steel bars are imported from Tanzania and the DR Congo, noting that this could change since the new fund will also support local investors to produce building materials.
Rukundo added that developers of high-rise buildings that require precast materials have no option but to import them from outside to ensure quality and safety of buildings.
Abadahigwa Ku Ntego Developers unveiled affordable houses, which cost Rwf18 million each about a fortnight ago.
Lillian Mupende, the chief executive officer, Ultimate Developers Limited, that is developing an upmarket estate in Kacyiru, said firms still import construction materials because some of the locally-made products are expensive compared to those bought from abroad. She said the firm was forced to import iron sheets, steel and other materials because of this challenge.
The prices for low-cost houses range from Rwf10 million to over Rwf150 million, depending on location, size and materials used, among other factors.
According to Claudette Rubangura, the corporate client officer at Remote Estates, a firm that deals in sales of affordable apartments, a three-bedroom apartment goes for Rwf30 million; those categorised as mid-range cost Rwf50 million, and its Rwf75-80 million for homes of upper end of market pyramid.
Jean de Dieu Karangwa, from Forest Jackson Relocation Services, one will part with Rwf50 million for a four-bedroom (affordable) unit, while mid-range cost is Rwf70-80 million, and high-end affordable homes go for a whooping Rwf150 million per unit.
They, however, said that the prices vary according to location, with houses in the city centre costing much more compared to those in the outskirts
The housing market survey conducted in 2012 by the City of Kigali identified four components that contribute to the making homes more expensive; these are high cost of land, contributing 30-40 per cent of the housing unit’s selling price; high cost of finance, where investors borrow at 15-16 per cent per annum while buyers borrow at 18-21 per cent, and the fact that the mortgage repayment period of 10-15 years puts pressure on buyers, who have to pay big installments in mortgages.
The study showed that 340,000 new housing units are needed by 2022. Of these, 86 per cent should be affordable and mid-range,13 per cent social homes, and only less than one per cent should be premium houses. And, at least 34,000 new housing units should be brought onto the market every year.
Addressing the challenges
According to Leopold Uwimana, the affordable housing division manager at the Rwanda Housing Authority, some clients prefer imported materials.
“However, it is important for developers to encourage buyers to use locally-made products to support the economy.”
He noted that local companies like Ruliba Clays, which makes clay products, have helped the country reduce importation of construction materials.
He is optimistic that the ongoing Made-in-Rwanda campaign will, in the long-run, help create confidence among buyers about the quality of local products, adding that this is essential to sustain the boom in the construction and manufacturing sectors. “In two to three years, we will have made a huge leap forward in addressing these challenges,” he added.
Uwimana said there is also a challenge of skills, noting that some constructors do not know how to use the imported materials like precast concrete panels for building facades in landscaping and soundproofing, among others.
He said these materials also require experts to install them in the houses which mean incurring an extra.
Interventions to reduce cost of homes
According to Parfait Busabizwa, the City of Kigali vice-mayor in charge of economic development, there are initiatives by city authorities and government to ensure that people of different income levels own decent homes.
“For instance, Pan African Housing Fund and Kigali Batsinda Estate Limited constructed 300 houses for low-income earners at Batsinda last year. We have now launched the first batch of affordable houses at Masaka in Kicukiro District, which cost Rwf18 million each,” he said.
The official added that there are plans for each district in Kigali to build 10 affordable houses costing Rwf10 million each targeting low-income people, including teachers.
Peter Rwambala, the chief risk officer at BRD, said the development funder is working with commercial banks and the central bank “to see how they can reduce mortgage interest rates.”
“People have been complaining about high interest rates charged by banks for a long time. However, this issue could soon be history if our talks with commercial banks and National Bank of Rwanda on the issue of reducing their interest rates on mortgages succeed,” he said.
Steven Milindi, the managing director of Misteph Company, a real estate developer and property manager, said local firms should form partnerships with government or foreign entities to improve their capacity and quality to improve production and become competitive, adding that this could help the country reduce importation of construction materials.
“Despite the growing investment opportunities and demand, the majority of developers are unable to invest in affordable housing because they don’t have the required financial muscle, particularly when it involves use of imported materials,” he said.
Under the revised investment code, the government provides a 50 per cent waiver on corporate income tax for investors in affordable homes.
Contribution to GDP
figures from the National Institute of Statistics of Rwanda indicate that the construction industry contributed more than 7 per cent to the national GDP in 2016 and is growing at a rate of 9.4 per cent.
Vision 2020 targets
The country’s Vision 2020 targets urbanisation rate to grow from 17 per cent of the population in 2012 to 35 per cent by 2020.
It is envisaged that by that time, the urban population will increase from the current 1.7 million to 4.4 million, which is an expansion of about 2.7 million people living in urban areas. It is, therefore, important for government and stakeholders to put in place adequate infrastructure, including decent housing to accommodate the growing urban population.